Southern Water’s chief executive could have had a very different career. In 1988, Lawrence Gosden was about to embark on a financial management degree when a summer job laying pipes for the water company set him on a course to eventually leading the business.
Gosden’s spark for engineering was ignited and he turned his back on the spreadsheets to become involved with the major urban wastewater projects at the dawn of privatisation to stop sewage being pumped into the English Channel.
More than three decades later, with the industry on the cusp of another huge investment in sewage management and amid similar public furore, Gosden has a considerably bigger part to play. He knows that the next asset management period (AMP) will be critical, both for Southern and for the sector.
“If we get it right, we will enable a huge leap forward for the performance of the whole sector to reduce storm overflows and improve the natural environment. It’s the start of a multi-decades (programme of) improvements, similar to the early years after privatisation.”
Utility Week sat down with him to assess the challenges facing Southern and the sector – including the erosion of trust, the truth about sewer overflows and the need to ensure the sector remains attractive to investors.
We need to change the narrative
Much has changed in the three and half decades Gosden has dedicated to the sector including the level of public interest in sewage entering waterways. However, he points out that the challenge has been there from his very first day in the job and that the progress made is often overshadowed.
“Back then, it really was constant sewage going into the sea, all day every day. All of that infrastructure took treatment from zero in some coastal locations, to now 95% is captured and treated before being returned to the environment. Next we need to fix the final 5%.”
The sector also desperately needs to find better ways to communicate this progress to customers. As the first country in the world to monitor discharges from combined sewer overflows, the water sector in England and Wales has been heavily criticised for the level of pollution this revealed.
Wild swimmers, environmentalists and community groups have doggedly kept sewage discharges in the public discourse after data was first released from event duration monitors (EDMs). This discourse has laid the blame squarely on water companies.
“We need to accept the public narrative – largely due to the first-class piece of transparency to monitor and share data on overflows,” Gosden reflects.
With hindsight, he says water and sewerage companies were naïve in making all that information transparent as it begun measuring discharges without thinking about what that would do to a public narrative.
“Our customers have leapt way ahead of the industry – the whole system of water companies and regulators’ ability to make change. We can’t keep pace at the moment and are scrambling to catch back up with overflow reduction plans. We have to recognise that for what it is, the public narrative has gone back to almost where it was 30 years ago.”
Despite the outrage that followed EDM data being publicly available, Gosden knows transparency is the route to slowly rebuild lost trust.
This builds on work by his predecessor Ian McAulay, who sought to instil a new corporate culture after the company was prosecuted by both the Environment Agency and Ofwat for misreporting at sewage treatments between 2010 and 2017.
Record fines were dished out, the company’s reputation dragged through the mud, operational performance remained below sector averages. EDM data on overflows could hardly have come at a worse time.
Clearly the turnaround at Southern will take time – and a lot of money. In 2021, in something of a shock return to the water sector, Macquarie stepped in to pump much-needed equity into Southern as new owners. The group has backed Southern to the tune of £1.65 billion, allowing it to deliver £1 billion more capital improvements than set out in its AMP7 plans.
However, the Australian investment bank remains a controversial choice to own a water company for many of the sector’s fiercest critics. They point to the way Macquaire conducted its ownership of Thames Water between 2006 and 2017 – during Gosden’s time working there – when debt skyrocketed while the group took more than £1 billion in dividends.
However, Gosden insists: “They are being nothing but supportive, in honesty I found them the same at Thames. The full Totex programme was delivered and invested in – there were never changes or reductions.”
Macquarie’s time with Thames was during a low interest rate era. “Debt was always going to increase,” Gosden reflects. “Now we’re not in a low-interest rate era, which is why we need to see equity coming into the sector. So some of this is natural rebalancing of finances.”
Southern is fully funded to deliver into the next AMP and has forecast it should be in a position to pay a dividend towards the end of AMP8.
Profits since 2017 have been reinvested in the business and equity injections have supported investment and helped deleveraged the company.
Delivering on the turnaround plan
With new owners and funding in place, the organisation now has to deliver on its turnaround plan. With Southern consistently lurking at the lower end of league tables on a range of performance metrics, there is much to be done in the two years allocated to buck up performance.
“It’s a short timeframe of high energy action with a short sharp change in results. We need a dramatic change in results, that’s always what you’re trying to achieve with a turnaround. But the pace of change isn’t sustainable.”
The programme focuses on four areas – “because we can’t change everything,” Gosden says. Top of the list has been improving health and safety to support the workforce, this is on-track for a 40% improvement in 18 months of interruptions.
Unsurprisingly, significant environmental improvements are on the list. Southern’s latest rating from the Environment Agency was two stars out of four. With improvements underway since the enforcement cases mentioned above, Gosden expects to see the company edging up the scale this year.
“We had more than 400 category 1–3 pollution incidents 18 months ago, which halved in 2023,” he explains. “We’re looking at around 200, which is a really significant improvement, but still a little behind where we want to be.”
For 2024, the company is aiming to be in the EA’s amber and green zones.
Getting there, goes hand in hand with work to minimise risks of harm from storm overflows. Much needed investment in core infrastructure has included a full-scale rollout last year of 21,000 sensors in Southern’s sewer networks.
This industry first to measure wastewater levels gives operational teams eyes below ground to predict and detect issues before they cause environmental damage.
“We took some risk with this, we could have run a pilot for a couple of years, but we needed to radically shift the performance of the organisation and it needed brave moves at full scale.”
An overhaul of customer service introduced more ways for people to get into touch. An “overwhelming success” Gosden says, has been a video triage service. Engineers can resolve customer contacts about blockages, pipe problems or discolouration issues via video call. In many cases, simple fixes can be made by the customer without a home visit. More than 1,000 customer queries have been completed by video triage so far, which has cut home visits by 70%.
Water quality is another focus that also requires a vast programme of engineering work. Four treatment plants are being rebuilt over the coming five years. These must be completed without service interruptions or risk to customers’ supply while the existing plants are built.
Now, 11 months into the turnaround programme, and with more than a year to go, Gosden says tangible results will be yielded from 2026. Perhaps not quickly enough for critics who want overnight revolution.
The turnaround is being paid for by reinvestment back into the business. Gosden explains this was a deliberate choice by the new owners but ultimately investors deserve to see a return. “Global equity markets have a lot of choice, and money simply won’t flow into the sector if – at some point – there are not returns. It will stop, and at that point the industry’s ability to make change will stop also.”
He adds: “The whole point of privatisation was to enable the massive infrastructure programme (the Urban Wastewater Directive) from European legislation to be delivered, while minimising the impact on bills by spreading the cost of the capital over the lifetime of the asset.”
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